Tucows (NASDAQ:TCX) has acquired Rightside’s (NASDAQ:NAME) eNom business for $83.5M.

The deal consolidates the #1 and #2 domain name reseller platforms eNom and OpenSRS. Tucows will pick up 14.5 million domain names under management and 28,000 active resellers.

It also leaves Rightside as a shell of its former self. eNom generated $116.5 in revenue during the first three quarters of 2016, representing 72% of Rightside’s revenue during that period. Rightside will be left with its portfolio of new top level domain names, portfolio of second level domains, Name.com and half of NameJet, which is a partnership with Web.com. Update: Rightside’s share of NameJet was included in the transaction. This will make an interesting dynamic since Tucows just moved its expired inventory from SnapNames to GoDAddy.

Rightside’s market cap before the announcement was $158 million. Unless Rightside can quickly grow its revenue from new top level domain names–something that seems unlikely–I can’t imagine it remaining a public company for long. It’s also worth noting that Donuts previously offered $70 million for Rightside’s registry business. Add the $70 and $83.5 million, and you basically get the market cap.

The eNom business was very low margin. It also depended heavily on Namecheap, which represented 28% of domains under management.

It will be interesting to see what major shareholders do in the wake of this transaction. Investor J. Carlo Cannell previously argued that the company should sell off or invest less in its new top level domain portfolio. The company has essentially done the opposite.

Very interesting.
Rightside lost NameJet, lost eNom, lost OpenSRS, lost NameCheap and all other resellers. Went in opposite direction by betting on their nTLD’s?! Just after Donuts CEO steps aside the same week!?
WTH was Rightside thinking?!

“A shell of its former self” may be slightly overstating it. They were previously trying to execute on 3 different businesses: registry, reseller, and direct. Of those 3, reseller is the lowest margin and has the weakest growth potential. It’s becoming clear that the most (or perhaps only?) viable registrar model is to use domains as a loss-leader to establish the customer relationship, and then upsell value-added services. That’s much harder to do with the reseller model. At least now they have $100M in the bank to execute on the other two businesses. That’s still no guarantee given the uncertain timeframe of new TLD adoption, but it seems a better bet than the odds they faced previously. Also, I respect the boldness! Just my $0.02 as an outside observer. 🙂

Can understand the stock move by NAME however not quite understanding the move by TCX as they bought an asset that has been a lagger for ages. It also used a large portion of its credit facility to finance this deal. If they didn’t have their credit facility extended in recent memory this deal may have not happened. A big jump in both stocks however with how weak enom was growing getting rid of it was NAMEs only move with shareholders on its back.

– Rightside was levered. Since much of the assets are intangible, it becomes ever harder to secure conventional bank financing when the underlying business is losing money with an accelerating trend. Banks look for 2 sources of recovery, e.g. cashflow and asset disposal. The cashflow was not there and the intangible assets and hard to value. More here:

– The new registries, some of which are quite good, were slow to takeoff. Moreover, a lot of the better premium domains that could be sold, have been sold, often with front-loaded pricing. The easy money from these TLDs has been harvested, in other words. The next phase is a whole lot harder.

– The registrar business is dog-eat-dog and Enom was arguably undermanaged. It would have been a large drain on management bandwidth to run it well. Moreover, with Name.com, Rightside already had a capable in-house registrar with an in tact brand name.

So these are the facts. So what?

I believe those TLDs remain interesting for both Donuts and Amazon, both of which are Rightside’s backyard (Seattle). Given the sequenced timing of Bruce Jaffe’s appointment the day before, I believe that there is a second act, which is Rightside gets taken out by Donuts. After all, Rightside operates Donuts’ registry back-end.

And then watch out for Amazon, who may or may not be building a Death Star with their own portfolio of TLDs. So, now imagine this 4 act play:

And on a related note, Matt Overman of Rightside and I are on the dais together at NamesCon on Monday at 2 pm. I think this will make for interesting discussion about the future of (premium) gTLDs, which is the top of that session. Spoiler alert: I believe in new TLDs and the announcement of DigitalTown SmartWeb is a declaration to that effect.